By David Gear, director, head of major and complex loss (Scotland and Northern Ireland)
While it’s not a new concept, crowdfunding — raising funds through groups of people online — continues to draw the interest of many.
This practice allows individuals to give to a member of their community, a business or a cause they’re passionate about. For insurers, this sparks a question around how such funding should be treated in the context of a claim.
One of the most remarkable examples of crowdfunding took place during the first lockdown in the United Kingdom. The late great Captain Sir Tom Moore completed a fundraising walk that raised well over £30M for NHS Charities. Another example involved an individual in the hospitality sector who set up a campaign to fund and support legal action against insurers who refused to pay out for business interruption (BI) losses during the pandemic. These examples, much like the considerations for insurers and the courts, are broad.
Considerations for insurers and the courts
Commercial and domestic property loss adjusters now frequently encounter crowdfunding following significant damage to homes, historic landmarks, buildings of heritage, sporting venues and popular family attractions. Sometimes, given the national importance of certain buildings, donated government grants will assist with the rebuild. The issue is whether monies raised, which are often significant, by voluntary donations or government grants can be offset by an insurer in any claim payment?
In the 1947 case of Redpath v Belfast and County Down Railway, the court rejected monies being offset and accepted, stating that “it would be startling to the subscribers to that fund if they were to be told that their contributions were really made in ease and for the benefit of the negligent railway company.” Further landmark cases have considered the principle of indemnity and sums received by an insured party out with their own policy, examples being through subrogation or “gifts”.
Commonplace for high-profile incidents
While crowdfunding through website platforms is considered mainstream in today’s environment — seldom launched by the insured party — fundraisers are not always aware that the affected party and beneficiary of the funds has comprehensive insurance which will provide a full indemnity to them. This leads to the question, how do the monies received by an insured party affect, if at all, the claim being considered, and the level of indemnity being provided by their insurers?
Let’s assume a community building was destroyed and a local builder, alongside the community and funds raised by a funding website offered to cover the associated costs. There were no known or demonstrable uninsured losses. Should the insured return the money to those who have donated, thanking them whilst highlighting they are fully insured or, conversely, should they withdraw their claim as they now have no need to pursue a claim? This sensitive topic requires continued discussion among loss adjusters and insurers about offsetting funds raised. Especially considering that crowdfunding is here to stay and can in certain occasions result in a policyholder being over indemnified.
General principles to keep in mind
- An insurance policy is a contract of indemnity which will provide financial compensation in the event of a loss. Its aim is for the insured to be returned to the same financial position they were in immediately before the loss happened.
- An insured should not be worse or better off as a result of a claim.
- An insured should be fully indemnified but should never be more than fully indemnified.
- Sums received should put the insured in materially the same position it would have been in had the incident not occurred.
Our experts can review and provide guidance on the complex components of insurance claims, including those that involve crowdfunding. For more information, visit our website.